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JOURNAL of Technical Analysis Winter-Spring 2002

This indicator has always produced huge profits! In fact,
you would have doubled your money in just six months!
Such a claim could be a sales pitch. It could also be an analysts enthu-
siasm about some work just completed. But in either case, such claims
appear to be meeting increasing skepticism, perhaps because enough have
proven to be based more on fiction than quantifiable fact, perhaps because
enough investors have been burned by indicators that have failed to pan
out when put to real-time use, perhaps because the combination of ever-
strengthening computing power and ever-increasing program complexity
have made excessive optimization as easy, and dangerous, as ever.
In any case, the need to quantify accurately and thoroughly is greater
than ever. Honest and reliable quantification methods, used in the correct
way, are needed for increased research credibility. They are needed to im-
part objectivity. They are needed for effective analysis and for the sound
backing of research findings. The alternative is the purely subjective ap-
proach that uses trendlines and chart patterns alone, making no attempt to
quantify historical activity. But when the quantification process fails to
deliver, instead producing misleading messages, the subjective approach
is no worse an alternative a misguided quantification effort can be worse
than none at all. The predicament, then, is how to truly add value through
quantification.
THE CONCERNS
The major reason for quantifying results is to assess the reliability and
value of a current or potential indicator, and the major reason we have
indicators is to help us interpret the historical data. The more effective the
interpretation of historical market activity, the more accurate the projec-
tion about a markets future course. An indicator can be a useful source of
input for developing a market outlook if quantitative methods back its re-
liability.
But for several reasons, quantification must be handled with care. The
initial concern is the data used to develop an indicator. If its inaccurate,
incomplete, or subject to revision, it can do more harm than good, issuing
misleading messages about the market thats under analysis. The data should
be clean and contain as much history as possible. When it comes to data,
more is better the greater the data history, the more numerous the like
occurrences, and the greater the number of market cycles under study.
This leads to the second quantification concern, and thats sample size.
The data may be extensive and clean, and the analysis may yield an indica-
tor that foretold the markets direction with 100% accuracy. But if, for
example, the record was based on just three cases, the results would lack
statistical significance and predictive value. In contrast, there would be
fewer questions regarding the statistical validity of results based on more
than 30 observations.
The third consideration is the benchmark, or the standard for compari-
son. The test of an indicator is not whether it would have produced a profit,
but whether the profit would have been any better than a random approach,
or no approach at all. Without a benchmark, random walk suspicions
may haunt the results.
1
The fourth general concern is the indicators robustness, or fitness
the consistency of the results of indicators with similar formulas. If, for
example, the analysis would lead to an indicator that used a 30-week mov-
ing average to produce signals with an excellent hypothetical track record,
how different would the results be using moving averages of 28, 29, 31, or
32 weeks? If the answer was dramatically worse, then the indicators
robustness would be thrown into question, raising the possibility that the
historical result was an exception to the rule rather than a good example of
the rule. An indicator can be considered fit if various alterations of the
formula would produce similar results.
Figure 1
Summary Results From Hypothetical Indicator Tests
These results contain an impressive-looking EXCEPTION to the rule ...
Number Moving
of Average Accuracy Gain/Annum
Trades (Periods) Buy Level Sell Level Rate (%) (%)
40 70 100 110 50 11.2
39 71 99 111 50 11.3
37 72 98 112 65 15.1
37 73 97 113 52 10.1
36 74 96 114 50 9.8
These results would all be good EXAMPLES of the rule ...
50 20 15.6 8.6 55 11.8
49 21 15.8 8.4 56 12.0
48 22 16.0 8.2 56 12.1
47 23 16.2 8.0 57 12.1
46 24 16.4 7.8 56 12.0
Buy-Hold Gain/Annum 6.3
Moreover, the non-robust indicator may be a symptom of the fifth con-
cern, and thats the optimization process. In recent years, much has been
written about the dangers of excessive curvefitting and over-optimization,
often the result of unharnessed computing power. As analytical programs
have become increasingly complex and able to crunch through an ever-
expanding multitude of iterations, it has become easy to over-optimize.
The risk is that armed with numerous variables to test with minuscule in-
crements, a program may be able to pick out an impressive result that may
in fact be attributable to little more than chance. The accuracy rate and
gain per annum columns of Figure 1 compare results that include an im-
pressive-looking indicator that stands in isolation (top) with indicators that
look less impressive but have similar formulas (bottom). One could have
far more confidence using an indicator from the latter group even though
none of them could match the results using the impressive-looking indica-
tor from the top group.
What follows from these five concerns is the final general concern of
whether the indicator will hold up on a real-time basis. One approach is to
build the indicator and then let it operate for a period of time as a real-time
test. At the end of the test period, its effectiveness would be assessed. To
increase the chances that it will hold up on a real-time basis, the alterna-
tives include out-ofsample testing and blind simulation. An out-of-sample
approach might, for example, require optimization over the first half of the
date range and then a real-time simulation over the second half. The results
from the two halves would then be compared. A blind-simulation approach
might include optimization over one period followed by several tests of
the indicator over different periods.
Whatever the approach, real-time results are likely to be less impres-
THE QUANTIFICATION PREDICAMENT
Timothy W. Hayes, CMT
CHARLES H. DOW AWARD WINNER MAY 1996
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JOURNAL of Technical Analysis Winter-Spring 2002
sive than results during an optimization period. The reality of any indica-
tor developed through optimization is that, as history never repeats itself
exactly, it is unlikely that any optimized indicator will do as well in the
real-time future. The indicators creator and user must decide how much
deterioration can be lived with, which will help determine whether to keep
the indicator or go back to the drawing board.
TRADE-SIGNAL ANALYSIS
With the general concerns in mind, the various quantification methods
can be put to use. The first, and perhaps most widely used, is the approach
that relies on buy and sell signals, as shown in Figure 2.
2
When the indi-
cator meets the condition that it deems to be bullish for the market in ques-
tion, it flashes a buy signal, and that signal remains in effect until the indi-
cator meets the condition that it deems to be bearish. A sell signal is then
generated and remains in effect until the next buy signal. Since a buy sig-
nal is always followed by a sell signal, and since a sell signal is always
followed by a buy signal, the approach lends itself to quantification as
though the indicator was a trading system, with a long position assumed on
a buy signal and closed out on a sell signal, at which point a short position
would be held until the next buy signal.
Figure 2
The methods greatest benefit is that it clearly reveals the indicators
accuracy rate, a statistic thats appealing for its simplicity all else being
equal, an indicator that had generated hypothetical profits on 30 of 40 trades
would be more appealing than an indicator that had produced hypothetical
profits on 15 of 40 trades. Also, the simulated trading system can be used
for comparing a number of other statistics, such as the hypothetical per
annum return that would have been produced by using the indicator. The
per annum return can then be compared to the gain per annum of the bench-
mark index.
But the methods greatest benefit may also be its biggest drawback. No
single indicator should ever be used as a mechanical trading system as
stated earlier, indicators should instead be used as tools for interpreting
market activity. Yet, the hypothetical and actual can be easily confused.
Although the signal-based method specifies how a market has done be-
tween the periods from one signal to the next, they are not actual records of
real-time trading performance. If they were, the results would have to ac-
count for the transaction costs per trade, with a negative effect on trading
results. Figure 3 summarizes the indicators hypothetical trade results be-
fore and after the inclusion of a quarter-percent transaction cost, illustrat-
ing the impact that transaction costs can have on results. The more numer-
ous the signals, the greater the impact.
Also, as noted in the results, another concern is the maximum draw-
down, or the maximum loss between any consecutive signals. But again,
as long as it is clear that the indicator is for perspective and not for dictat-
ing precise trading actions, indicators with trading signals can provide useful
input when determining good periods for entering and exiting the market
in question.
ZONE ANALYSIS
In contrast to indicators based on trading signals, indicators based on
zone analysis leave little room for doubt about their purpose they dont
even have buy and sell signals. Rather, zone analysis recognizes black,
white and one or more shades of gray. It quantifies the markets perfor-
mance with the indicator in various zones, which can be given such labels
as bullish, bearish or neutral depending upon the markets per an-
num performance during all of the periods in each zone. Each period in a
zone spans from the first time the indicator enters the zone to the next
observation outside of the zone. Unlike the signal-based approach, the in-
dicator can move from a bullish zone to a neutral zone and back to a bull-
ish zone. An intervening move into a bearish zone is not required.
Figure 3
Summary Results For Indicator In Figure 2 No Transaction Costs
Value Line Geometric $ 574,104 1/24/72 5/30/96
Last Profit Number Days Gain Model Buy/Hold
Signal Current of Per Per Batting Gain Per Gain Per $10,000
"Sell" Trade Trades Trade Trade Average Annum Annum Investment
5/07/96 -2.9% 240 37 1.9% 50% 18.1% 4.8% $574,104
Maximum Drawdown: -4.68%
Summary Results For Indicator In Figure 2 Including Transaction Costs
Of A Quarter Percent Per Trade
Value Line Geometric $173,271 1/24/72 5/30/96
Last Profit Number Days Gain Model Buy/Hold
Signal Current of Per Per Batting Gain Per Gain Per $10,000
"Sell" Trade Trades Trade Trade Average Annum Annum Investment
5/07/96 -3.4% 240 37 1.4% 45% 12.4% 4.8% $173,271
Maximum Drawdown: -4.68%
Zone analysis is therefore appealing for its ability to provide useful
perspective without a simulated trading system. The results simply indi-
cate how the market has done with the indicator in each zone. But this type
of analysis has land mines of its own. In determining the appropriate lev-
els, the most statistically-preferable approach would be to identify the lev-
els that would keep the indicator in each zone for roughly an equal amount
of time. In many cases, however, the greatest gains and losses will occur in
extreme zones visited for a small percentage of time, which can be prob-
lematic for several reasons:
1. if the time spent in the zone is less than a year, the per annum gain can
present an inflated picture of performance;
2. if the small amount of time meant that the indicator made only one
sortie into the zone, or even a few, the lack of observations would lend
suspicion to the indicators future reliability;
3. the indicators usefulness must be questioned if its neutral for the vast
majority of time.
A good compromise between optimal hypothetical returns and statisti-
cal relevance would be an indicator that spends about 30% of its time in
the high and low zones, like the indicator in Figure 4. For an indicator with
more than four years of data, that would ensure at least a years worth of
time in the high and low zones and would make a deficiency of observa-
tions less likely. In effect, the time-in-zone limit prevents excessive opti-
mization by excluding zone-level possibilities would look the most im-
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JOURNAL of Technical Analysis Winter-Spring 2002
pressive based on per annum gain alone.
Another consideration is that in some cases, a closer examination of
the zone performance reveals that the bullish-zone gains and bearish-zone
losses occurred with the indicator moving in particular directions. In those
cases, the bullish or bearish messages suggested by the per annum results
would be misleading for a good portion of the time, as the market might
actually have had a consistent tendency, for example, to fall after the
indicators first move into the bullish zone and to rise after its first move
into the bearish zone.
Figure 4
It can therefore be useful to subdivide the zones into rising-in-zone and
falling-in-zone, which can have the added benefit of making the informa-
tion in the neutral zone more useful. This requires definitions for rising
and falling. One way to define those terms is through the indicators rate
of change. In Figure 5, which applies the approach to the primary stock
market model used by Ned Davis Research, the indicator is rising in the
zone if its higher than it was five weeks ago and falling if its lower.
Again, the time spent in the zones and the number of cases are foremost
concerns when using this approach.
Figure 5
Alternatively, rising and falling can be defined using percentage
reversals from extremes, in effect using zones and trading signals to con-
firm one another. In Figure 6, for example, the CRB Index indicator is
rising and on a sell signal once the indicator has risen from a trough
whereas its falling and on a buy signal after the indicator has declined
from a peak. Even though the reversal requirements resulted from optimi-
zation, the indicator includes a few poorly-timed signals and would be
risky to use on its own. But the signals could be used to provide confirma-
tion with the indicator in its bullish or bearish zone, in this case the same
zones as those used in Figure 4. For example, in late 1972 and early 1973
the indicator would have been rising and in the upper zone, a confirmed
bearish message. The indicator would then have peaked and started to lose
upside momentum, generating a falling signal and losing the confirma-
tion. That signal would not be confirmed until the indicators subsequent
drop into its lower zone.
Figure 6
The charts box shows the negative hypothetical returns with the indi-
cator on a sell signal while in the upper zone, and on a buy signal while in
the lower zone. In contrast to the rate-of-change approach to subdividing
zones, this method fails to address the market action with the indicator in
the middle zone. But it does illustrate how zone analysis can be used to in
conjunction with trade-signal analysis to gauge the strength of an indicators
message.
SUBSEQUENT-PERFORMANCE ANALYSIS
In addition to using signals and zones, results can be quantified by gaug-
ing market performance over various periods following a specified condi-
tion. In contrast to the trade-signal and zone-based quantification meth-
ods, a system based on subsequent performance calculates market perfor-
mance after different specified time periods have elapsed. Once the long-
est of the time periods passes, the quantification process becomes inactive,
remaining dormant until the indicator generates a new signal. In contrast,
the other two approaches are always active, calculating market performance
with every data update.
The subsequent-performance approach is thus applicable to indicators
that are more useful for providing indications about one side of a market,
indicating market advances or market declines. And its especially useful
for indicators with signals that are most effective for a limited amount of
time, after which they lose their relevance. The results for a good buy-
signal indicator are shown in Figure 7, which lists market performance
over several periods following signals produced by a 1.91 ratio of the 10-
day advance total to the 10-day decline total.
In its most basic form, the results might list performance over the next
five trading days, 10 trading days, etc., summarizing those results with the
average gain for each period. However, the results can be misleading if
several other questions are not addressed. First of all, how is the average
determined? If the mean and the median are close, as they are in Figure 7,
then the mean is an acceptable measure. But if the mean is skewed in one
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JOURNAL of Technical Analysis Winter-Spring 2002
direction by one or a few extreme observations, then the median is usually
preferable. In both cases, the more observations the better.
Secondly, whats the benchmark? While the zone approach uses rela-
tive performance to quantify results, trade-signal analysis includes a com-
parison of per annum gains with the buy-hold statistic. Likewise, the sub-
sequent-performance approach can use an all-period gain statistic as a
benchmark. In Figure 7, for instance, the average 10-day gain in the Dow
Industrials has been 2% following a signal, nearly seven times the 0.3%
mean gain for all 10-day periods. This indicates that the market has tended
to perform better than normal following signals. That could not be said if
the 10-day gain was 0.4% following signals.
Figure 7
Percent Change Of Dow Industrials Following 1.91 Ratio Of 10-day
Advances To 10-Day Declines
Trading Days Later
Signal 10-Day
Date A/D 5 10 22 63 126 252
06/23/47 1.96 -0.1 2.9 5.3 0.3 0.1 3.7
03/29/48 2.05 2.2 3.2 5.8 11.2 4.0 0.6
07/13/49 2.06 1.4 1.9 3.5 7.0 15.2 28.4
11/20/50 2.01 1.5 -1.7 -1.4 10.0 9.8 18.8
01/25/54 2.00 0.5 1.1 0.3 8.3 18.2 36.4
01/24/58 2.00 -0.1 -0.4 -3.1 0.6 10.3 31.4
07/10/62 1.98 -1.4 -2.0 0.9 0.0 14.0 21.5
11/07/62 1.91 2.4 3.5 4.8 10.3 17.3 21.1
01/13/67 1.94 1.4 1.1 2.6 2.9 5.6 6.9
08/31/70 1.91 1.1 -1.8 -0.5 3.9 15.5 17.9
12/03/70 1.95 1.5 1.7 3.6 11.1 14.1 5.0
12/08/71 1.98 1.0 3.5 6.2 10.6 10.4 20.2
01/08/75 1.98 2.8 2.7 12.0 20.9 37.2 41.4
01/06/76 2.05 2.5 6.6 8.3 12.7 11.3 10.9
08/23/82 2.02 0.2 2.6 3.9 14.6 22.6 34.0
10/13/82 2.03 1.9 -0.9 2.4 6.7 13.9 24.6
01/21/85 1.93 1.3 2.3 1.4 0.4 7.6 20.1
01/14/87 2.19 2.9 6.3 7.3 10.7 22.1 -5.4
02/04/91 1.96 4.7 5.8 6.9 6.1 7.8 16.7
01/06/92 1.99 -0.5 1.7 1.8 1.5 4.3 3.4
Median 1.4 2.1 3.6 7.7 12.6 19.4
Mean 3.1 2.0 3.6 7.5 13.1 17.9
Mean All Periods 0.2 0.3 0.7 2.0 4.0 8.1
% Cases Higher 80 75 85 100 100 100
% Cases Higher All Periods 56 58 60 63 67 70
Signals based on 10-day total of NYSE advances over 10-day total of NYSE declines. Concept courtesy of
Dan Sullivan, modified by Ned Davis Research.
A third question is how much risk has there been following a buy-sig-
nal system, or reward following a sell-signal system? Using a buy-signal
system as an example, one way to address the question would be to list the
percentage of cases in which the market was higher over the subsequent
period, and to then compare that with the percentage of cases in which the
market was higher over any period of the same length. Again using the 10-
day span in Figure 7 as an example, the market has been higher after 75%
of the signals, yet the market has been up in only 58% of all 10-day peri-
ods, supporting the significance of signals. Additional risk information could
be provided by determining the average drawdown per signal i.e., the
mean maximum loss from high to low following signals. The mean for the
10-day period, for example, was a maximum loss of 0.7% per signal, sug-
gesting that at some point during the 10-day span, a decline of 0.7% could
be considered normal. The opposite approaches could be used with sell-
signal indicators, with the results reflecting the chances for the market to
follow sell signals by rising, and to what extent.
Along with those questions, the potential for double-counting must be
recognized. If, for example, a signal is generated in January and a second
signal is generated in February, the four-month performance following the
January signal would be the same as the three-month performance follow-
ing the February signal. This raises the question of whether the three-month
return reflects the impact of the first signal or the second one. Moreover,
such signal clusters give heavier weight to particular periods of market
performance, making the summary statistics more difficult to interpret. Prob-
lems related to double-counting can be reduced or eliminated by adding a
time requirement. For the signals in Figure 7, for instance, the condition
must be met for the first time in 50 days if the ratio reaches 1.92, drops to
1.90, and then returns to 1.92 two days later, only the first day will have a
signal. The time requirement eliminates the potential for double-counting
in any of the periods of less than 50 days, though the longer periods still
contain some overlap in this example.
Figure 8
Performance Of Dow Industrials Following Initial Index Confirmation
(Joint 52-week Highs For The First Time In A Year)
26 Weeks Later 39 Weeks Later 52 Weeks Later
Confirming % Mean % All % Mean % All % Mean % All Latest
Index Cases Higher % Gain Periods Higher % Gain Periods Higher % Gain Periods Close
New York Utilities 7 100 8.79 5.53 100 13.59 7.98 100 16.62 10.35 5/12/95
World Composite 6 100 8.47 5.85 80 9.74 8.88 100 12.91 11.78 9/15/95
Weekly New Highs 9 89 7.79 3.53 78 10.09 5.27 100 14.41 6.98 3/31/95
NYSE Weekly Volume 10 70 6.64 3.53 67 5.16 5.27 89 6.91 6.98 7/14/95
S&P 500 Composite 22 73 5.13 3.53 73 9.92 5.45 82 14.78 7.47 2/10/95
NYSE Composite 20 63 4.02 3.72 68 8.10 5.68 79 13.29 7.60 2/10/95
AMEX Composite 9 67 3.53 5.53 67 8.20 7.98 78 13.62 10.35 3/31/95
OTC Composite 9 56 3.77 5.53 67 7.73 7.98 78 12.38 10.35 3/17/95
Dow Transports 22 77 5.26 3.53 73 8.62 5.45 76 9.99 7.47 4/13/95
S&P High-Grade Index 12 67 5.46 3.53 75 9.73 5.27 75 10.77 6.98 2/17/95
S&P Industrials 12 58 1.66 3.53 58 4.34 5.27 75 10.15 6.98 2/10/95
NYSE Financials 11 45 0.59 3.53 55 4.86 5.24 73 10.06 6.92 4/07/95
Dow Utilities 23 70 6.00 3.27 65 7.63 5.05 73 9.18 6.95 5/05/95
Weekly A/D Line 12 58 2.44 3.53 67 5.30 5.27 73 7.31 6.98 4/13/95
S&P Low-Priced Index 11 55 1.26 3.53 40 2.88 5.27 70 7.31 6.98 7/14/95
Value Line Composite 14 50 1.35 3.53 50 3.74 5.27 69 6.26 6.98 4/13/95
Confirmation occurs, and a case identified, when the DJIA and the index in question both reach 52-
week highs, the first such joint occurrence in at least a year. Table is sorted based on percentage of cases
in which the index was higher over the subsequent 52-week periods (column shaded). % All Periods is
the DJIAs mean gain for all 26, 39, and 52 week periods starting with the beginning of the data series in
question. Table updated through 4/04/96.
Another application of subsequent-performance analysis is shown in
Figure 8, which is not prone to any double-counting. The signals require
that three conditions are met, all for the first time in year the Dow Indus-
trials much reach its highest level in a year, another index must reach its
highest level in a year, and the joint high must be the first in a year. The
significance for the various indices can then be compared in conjunction
with their benchmarks i.e., the various all-period gains. Figure 9 uses 12
of those indices to show how subsequent performance analysis for both
buy signals and sell signals can be used together in an indicator. For each
time span, the charts box lists the markets performance after buy signals,
after sell signals, and for all periods.
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JOURNAL of Technical Analysis Winter-Spring 2002
REVERSAL-PROBABILITY ANALYSIS
Finally, the subsequent performance approach is useful for assessing
the chances of a market reversal. In Figure 10, the signal is the markets
year-to-year change at the end of the year, with the signals (years) catego-
rized by the amount of change years with any amount of change, those
with gains of more than 5%, etc. In this case, the subsequent-performance
analysis is limited to the year after the various one-year gains. But the
analysis takes an additional step in assessing the chances for a bull market
peak within the one- and two-year periods after the years with market gains,
or a bear market bottom within the one- and two-year periods after the
years with market declines.
Figure 9
This analysis requires the use of tops and bottoms identified with ob-
jective criteria for bull and bear markets in the Dow Industrials. The rever-
sal dates show that starting with 1900, there have been 30 bull market
peaks and 30 bear market bottoms, with no more than a single peak and a
single trough in any year. This means that for any given year until 1995,
there was a 31% chance for the year to contain a bull market peak and a
31% chance for the year to contain a bear market bottom (30 years with
reversals / 95 years).
Figure 10
Using this percentage as a benchmark, it can then be determined whether
theres been a significant increase in the chances for a peak or trough in the
year after a one-year gain or loss of at least a certain amount. The charts
boxes show the peak chances following up years and the trough chances
following down years, dividing the number of cases by the number of peaks
or troughs. For example, prior to 1995, there had been 31 years with gains
in excess of 15% starting with 1899. After those years, there was a 52%
chance for a bull market peak in the subsequent year (16 following-years
with peaks / 31 years with gains of more than 15%). The chances for a
peak within two years increased to 74%, which can be compared to the
benchmark chance for at least one peak in 61% of the two-year periods
(since several two-year periods contained more than one top, this is not the
exact double of the chances for a peak in any given year).
A major difference in this analysis is that in contrast to signals and
zones, which depend upon the action of an indicator, this approach de-
pends entirely on time. Each signal occurs after a fixed amount of time
(one year), with the signals classified by what they show (a gain of more
than 5%, etc.). Depending upon the classification, the risk of a peak or
trough can then be assessed.
CONCLUSION
Each one of these methods can help in the effort to assess a markets
upside and downside potential, with the method selected having a lot to do
with the nature of the indicator, the time frame, and the frequency of oc-
currences. The different analytical methods could be used to confirm one
another, the confirmation building as the green lights appeared. An alter-
native would be a common denominator approach in which several of the
approaches would be applied to an indicator using a common parameter
(i.e., a buy signal at 100). Although the parameter would most likely be
less than optimal for any of the individual methods, excessive optimiza-
tion would be held in check. But whatever approaches are used, it needs to
be stressed that each one of them has its own means of deceiving. By better
understanding the potential pitfalls of each approach, indicator develop-
ment can be enhanced, indicator attributes and drawbacks can be better
assessed, and the indicator messages can be better interpreted.
The process of developing a market outlook must be based entirely on
research, not sales. The goal of research is to determine if something works.
The goal of sales is to show that it does work. Yet in market analysis, the
lines can blur if the analyst decides how the market is supposed to per-
form, then selling himself on this view by focusing only on the evidence
that supports it. Whats worse is the potential to sell oneself on the value of
an indicator by focusing only on those statistics that support ones view,
regardless of their statistical validity. As shown by the various hazards
associated with the methods described in this paper, such self-deception is
not difficult to do.
Our goals should be objectivity, accuracy, and thoroughness. Using a
sound research approach, we can determine the relative value of using any
particular indicator in various ways. And we can assess the indicators value
and role relative to all the other indicators analyzed and quantified in a
similar way. The indicator spectrum can then provide more useful input
toward a research-based market view.
FOOTNOTES
1. Reference to Burton Malkeil's A Random Walk Down Wall Street, which
argues that stock prices move randomly and thus cannot be forecasted
through technical means.
2. The charts that accompany this paper were produced with the Ned Davis
Research computer program.
Since winning the third Dow Award in 1996, Tim Hayes has expanded upon
"The Quantification Predicament" in writing his first book, "The Research Driven
Investor," published in November 2000 by McGraw-Hill. A Global Equity Strate-
gist for Ned Davis Research, Tim and his team have developed numerous U.S. and
global asset allocation indicators and models in recent years, while also develop-
ing global market and sector ranking systems and indicators based on 18 market
sectors in 16 countries.